The Cost of the Device Tax

When U.S. Sen. Max Baucus (D-Mont.), chair of the Senate Finance Committee, and  U.S. Rep. Dave Camp (R-Mich.) announced their intention to tour the United States drumming up support for a renovation of the U.S. tax system, medical device advocacy organizations eagerly voiced their approval.

“MDMA applauds Chairman Baucus and Chairman Camp for their bipartisan work to reform the tax code in a manner that enhances American competitiveness, promotes innovation and strengthens our economy,” said Mark Leahey, president and CEO of the Medical Device Manufacturers Association. “Repealing the medical device tax is a great example where there is strong, bipartisan support to end a policy that thwarts innovation and job creation.  The medical device tax is stymieing American manufacturing, and we need to remove this roadblock for today’s entrepreneurs.”

MDMA, together with The Medical Imaging & Technology Alliance (MITA) and the Advanced Medical Technology Association (AdvaMed), published an estimation of how much the medical device tax has cost companies thus far this year. According to the associations’ statement, as of July 15, 2013, “medical device manufacturers have now paid an estimated $1 billion to the Internal Revenue Service for the medical device excise tax.”

“The $1 billion threshold is frightening as every dollar spent paying for this medical device tax threatens medical innovation and American jobs,” said Gail Rodriguez, Executive Director of MITA. “MITA is pleased to see bipartisan support for repeal of the tax building in both the House and the Senate, but Congress cannot wait any longer to repeal this burdensome tax and protect jobs and essential R&D funding.”

“Repealing the device tax has strong bipartisan support and is the first step to corporate tax reform. Medical technology companies across the country are struggling to remain competitive and this tax makes their effort to grow, innovate and invest in the future that much harder,” said Stephen J. Ubl, president and CEO of AdvaMed.

“Each day that goes by with the medical device tax in effect is a major roadblock for patient care, job creation and innovation,” added Leahey. “This issue is a shining example where there is overwhelming bipartisan support in both chambers of Congress to right a wrong, and MDMA continues to work with all stakeholders to get repeal of this onerous policy across the finish line.”

According to AdvaMed, device manufacturers end up having to pay an average of $194 million per month to the IRS under the 2.3 percent tax. Payments are due semimonthly. Among the affected, claims AdvaMed, are 2 million employees nationwide. The industry reportedly generates approximately $25 billion in payroll, pays out salaries that are 40 percent higher than the national average ($58,000 vs. $42,000) and invests nearly $10 billion in research and development annually. 
     
Bipartisan majorities in the House of Representatives and Senate have supported repeal of the device tax. In March, a bipartisan coalition of 79 Senators voted to adopt an amendment to the Fiscal Year 2014 Senate Budget Resolution to repeal the medical device tax. In the House, Reps. Erik Paulsen (R-MN) and Ron Kind (D-WI) introduced the “Protect Medical Innovation Act,” garnering a bipartisan group that has grown to 253 co-sponsors, including 34 Democrats, since introduction.

“Since the medical device industry was not instrumental in coming up with this tax, I think it feels very strongly that it need not get involved with the business of government and identifying an offset for the tax,” Tom Sommer, president of the Massachusetts Medical Device Industry Council, told MPO earlier this year. “It’s really the job of the lawmakers to come up with an appropriate budgetary offset.”